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HMRC internal manual

Banking Manual

Bank compensation restriction: disclosure condition: example - disclosures

Bank D makes a number of disclosures within its annual accounts.

  1. The largest compensation issues, such as PPI, are explicitly broken out and the costs associated with them are specifically identified.
  2. The Chairman’s report mentions that D is seeing an increased rate of complaints about a certain category of product, and although the bank considers it has acted appropriately there may ultimately be some compensation payable in cases where the customer has suffered damage. 
  3. Finally, in the divisional analysis the overview of one division notes that there is increasing regulatory scrutiny of certain types of products, and  the Financial Conduct Authority has announced it will be conducting a sector-wide review into whether the market is working effectively for customers. The narrative explains that D has only sold a limited number of such products and therefore would have limited exposure in the event of any regulatory ruling.

All of the issues above could be said to have been disclosed in the accounts and reports. 

In the case of 1, HM Revenue and Customs would consider the issue to have been disclosed in the accounts.

The cases of 2 and 3 are slightly more complex. The legislation requires that the accounts must have disclosed that the company will, rather than may, become liable to pay compensation. In each of 2 and 3, there is not this degree of certainty and so HM Revenue and Customs does not believe these disclosures would satisfy the disclosure condition at that time. Once the banking company knows that it will have a liability, it will make a further decision about whether a disclosure should be made; and it is this which will govern whether the issue is within the scope of the legislation